Uber’s CEO claims his company is attracting one million riders a day in China and that its business has doubled in the last month. Travis Kalanick made that boast in a letter he sent to a number of media outlets recently, including The Financial Times.
The letter includes some claims that could be quite extraordinary if they are true. Among other things, Kalanick wrote this statement:
“Our riders are completing almost 1 million trips per day and the business has doubled in the last month. Remarkably, we are only scratching the surface. Today we are live in 11 Chinese cities with an average population of 14 million. Yet there are 80+ cities with over 5 million people (as a reference, 5 million is roughly the size of Miami, one of the largest cities in the U.S.). Over the next year we plan to launch in 50 of those Chinese cities.”
If we can believe Mr. Kalanick (and I personally do not believe anything he says), Uber is about to become a basically Chinese company. It could also become a very wealthy company in the Middle Kingdom.
Why Uber Needs China
Uber, of course, needs China given its reception in Europe and the legal troubles that are driving it out of many markets here in the United States. Among other things, Uber faces the prospect of treating its drivers in the U.S. as employees, something that could quickly bankrupt the company with taxes and other expenses.
Succeeding in China might be Uber’s only chance of survival. That might be why Uber is trying to raise $1 billion from venture capitalists to finance its expansion of operations in the People’s Republic.
The money Uber makes in China could finance some of its more interesting business experiments, such as its foray into robotics and its efforts to develop a self-driving car. The funds could also help Uber in its growing war with Google.
China could also be the perfect market for Uber because of its Wild West brand of capitalism. Labor laws are lax, and institutions like taxi cab companies and government regulation are rare. That makes it easier for Uber to implement its brand of networked transportation in that nation.
Uber’s business model, which utilizes independent contractors instead of employees, is also more in keeping with the labor practices most Chinese are used to. In other words, Chinese are more likely to accept Uber and to work for it than Americans or Europeans might be.
The success of Alibaba (NYSE: BABA) has also shown us that China has effectively bypassed 20th century capitalism and gone straight into the 21st century. The kind of capitalism that most Chinese are used to is a combination of modern networked free markets and the traditional face-to-face village market. Uber is a perfect fit for that because it is Uber’s market.
That might make China Uber’s home and its perfect refuge if it gets driven out of the United States and Europe, which is likely to happen within the next few years. The institutions and market forces that have hindered Uber’s expansion in the United States, Europe, India and elsewhere might not exist in China, which could open the door for a meteoric period of growth similar to that at Alibaba.
The Chinese market might be Uber’s only hope to justify the $40 to $50 billion valuation that some analysts have put on it. It might also be the only place that Uber can raise the cash it needs to pay off all the investors that have shelled out big bucks to finance Mr. Kalanick’s dream (whatever that is).
Kalanick and Uber on Shaky Legal Ground
These claims also prove that while an investment industry darling, Uber and Kalanick are on very shaky legal ground. If Kalanick cannot verify these claims, he could be facing some serious lawsuits and perhaps criminal charges at some point.
If China does not prove to be the bonanza that Kalanick boasts it is, Uber could quickly collapse as investors run away from it. China could be the proving ground where Uber shows whether it is the future of technology or simply a pyramid scam built on a mountain of debt.
Mr. Kalanick’s billion dollar China deal will either be the beginning of Uber’s rise to greatness or the beginning of the end for this company and its arrogant leader. I just hope that Travis Kalanick’s meteoric rise does not end in a cell in a Chinese prison. That might be where Kalanick is heading if the Chinese people turn against Uber like others have.